What is risk in investing?

For most people, "risk" in the stock market means "the stock might fall." That's price volatility - and it's only one type of risk. The more useful definition: risk is the chance that the business itself doesn't do what you expect.

A stock can fall 30% because the market mood changed (volatility, not real risk). A stock can also fall 30% because the company lost its biggest customer and earnings collapsed (real risk). The first usually recovers; the second often doesn't.

The five real risks every retail investor should track

1. Business risk - will demand for what the company sells be there in 3, 5, 10 years? A company making feature phones is at high business risk; a company making cement less so.

2. Financial risk (leverage) - how much debt is the company carrying? A leveraged company is fine when growth is strong, deadly when growth slows.

3. Governance risk - is management honest? Are minority shareholders treated fairly? Are related-party transactions clean? (See the dedicated page on this - most retail loss-making investments fail here, not on the numbers.)